100% right shares worth Rs 93.30 crore of Arun Valley Hydropower graded 4+; Grading indicates below-average fundamentals

100% right...

CARE Ratings Nepal Ltd. (CRNL) has assigned grading of ‘CARE-NP IPO Grade 4+’ to the proposed Rights Share Issue of Arun Valley Hydropower Development Company Ltd. (AHPC). ‘CARE-NP IPO Grade 4+’ indicates Below Average Fundamentals. CRNL assigns IPO grade on scale of Grade 1 to Grade 5, with Grade 1 indicating strong fundamentals and Grade 5 indicating poor fundamentals. CRNL use modifier {"+" (plus)} with the grading symbols 2, 3 and 4 and the same reflect comparative standing within the category. The grading of 2+, 3+ and 4+ is better than 2, 3, and 4, respectively.  CRNL’s IPO grading is an opinion on the fundamentals of the issuer. The grade assigned to any individual issue represents a relative assessment of the ‘fundamentals’ of the issuer. AHPC proposes to issue 9.983231 Million shares of face value of Rs.100 each at par aggregating Rs. 998.3231 Million. 

Key Grading Weaknesses

  • Project implementation risk and stabilisation risk along with relatively high estimated cost of project
  • Current project operated at low PLF
  • Operational and execution risk of the project, in which AHPC has invested and provided corporate guarantee
  • Exposure to volatile interest rates
  • Hydrology risk associated with run-of-the-river power generation
  • Exposure to regulatory risk

Key Grading Strengths

  • Experienced promoter/ directors and management expertise
  • Multiple hydropower projects being developed through associate companies
  • Long track record in operating hydro power project coupled with comfortable financial performance with dividend paying history
  • Power purchase agreement with sufficient period coverage
  • Moderate counter party risk
  • Financial closure achieved for the estimated project cost
  • Low power evacuation risk
  • Shortage of power at present coupled with increasing demand of power in the
  • Government support for the power sector

 About the Company

AHPC is a public limited company promoted by business persons having long experience in the hydropower and other sectors for setting up Hydroelectric Project (HEP) in the territory of Nepal. The company was established as on March 12, 1998 as a private limited company and later converted to public limited company as on August 27, 2009. It was listed in Nepal Stock Exchange dt. August 28, 2009. 

AHPC has two run of the river hydropower project; 3MW operational Piluwa Khola Small Hydroelectric Project (PKHEP) at Sankhuwasabha District which has been in commercial operation since August 2003 and 9.94MW under construction Kabeli B-1 Cascade Hydroelectric Project (KBHEP) at Panchthar District. KBHEP will utilized water from tailrace of 25MW operational Kabeli B1 Hydroelectric Project of Arun Kabeli Power Ltd.

The projects are constructed under BOOT (Build, own, Operate and Transfer) mechanism. As per the Generation License, from Government of Nepal – Ministry of Energy, dated August 21, 2000 for PKHEP and November 12, 2019 for KBHEP, the project shall be handed, on whatever conditions the project is, to the Government of Nepal after expiry of Generation License, which is 40 and 35 years respectively. AHPC has Rs 933 Mn paid up share capital at the end of FY19 and declared 7% bonus share in FY19. Mr. Guru Prasad Neupane (5.78% stake), Mrs. Sumitra Devi Neupane (4.43% stake), Mr. Amar Raja Tamrakar (3.60% stake), Mr. Jeevan Raj Shakya (2.64% stake), and Mr. Gagan Bir Singh Kansar (1.74% stake) are major shareholders of the company.  

Brief Financial Performance during last 3 years: 

(Rs in Mn)

Particulars

FY17 (A)

FY18 (A)

FY19 (A)

H1FY20 (UA)

Total Income

130

71

97

60

PBILDT

114

39

82

50

PAT

91

20

53

33

Gross Cash Accruals

102

33

66

39

RONW (%)

10.09

2.12

5.39

6.43

Total Gearing Ratio

-

0.06

0.05

0.08

Interest Coverage Ratio

731.16

9.41

11.43

10.63

Source: https://careratingsnepal.com/

Read the full report here.

Arun Valley intends to float 100% right share; AGM on Mangsir 28